- Africa's Silk Road: China and India's New Economic Frontier
World trade dynamics are shifting: actors are changing, as new centers of trade and finance are emerging in the global South; production processes are fragmenting, as partnerships between producers and buyers are diversifying into multilateral chains of production. For Harry Broadman of the World Bank, this new economy, with emerging actors and evolving production processes, is the key to development in regions falling off the radar of international trade and investment—specifically Africa. His book examines Africa's potential to enter the global economy by leveraging burgeoning South–South trade and investment. He focuses on flows of goods, services, and finance between sub-Saharan Africa and China and India. Africa, he concludes, can exploit heightened relations with Asia by reforming its market conditions to attract foreign direct investment (FDI) and participate in global production networks.
Broadman addresses African–Asian interactions in three sections. First, he presents graphs and tables depicting the explosion of trade and investment between Africa and Asia, with emphasis on China and India. Most heightened African–Asian relations, however, are the result of increases in African oil and mineral exports, which offer little opportunity for entering global production networks. While trade and investment in nonoil or nonmineral sectors is low, Broadman notes, its rate of growth is high, and complementarities between African and Chinese or Indian supply and demand—China and India demand primary commodities and supply manufactures and machinery, while the reverse is true for Africa—will continue to drive these growth rates.
In the second section, Broadman identifies the largest barriers to African–Asian trade and investment, and uses them to suggest policies that African countries can promulgate to amplify the capital flows described in the first section. Using firm-level survey and case-study data from Chinese and Indian firms operating in Africa, he identifies the most crucial barriers to African–Asian trade and investment at the border (tariffs and nontariff barriers), behind the border (domestic conditions), and between the borders (cross-border communication and transport) of these two regions. His analysis indicates that superficial trade reforms at the border are a necessary but not sufficient precursor to increased capital flows. Behind-border investment climates and between-border transaction costs are equally or [End Page 91] more important to export promotion: "if African countries are to enhance their trade performance in Asia," Broadman concludes, "it will take far more than simply liberalizing trade policies to reach that objective" (p. 113). He suggests reforming investment climates by removing barriers to firm entry and exit, improving legal and judicial institutions, and increasing governance transparency and accountability. He recommends lowering transaction costs by harmonizing custom reforms, improving transportation and communication networks, and cultivating the Chinese and Indian diaspora "to serve as a bridge for doing business" (p. 285).
The third section examines the potential for Africa to join the global economy through intraindustry, or "network," trade. Broadman finds that Chinese and Indian firms in Africa, because they produce more diversified goods and services, which are higher up the value chain, offer a better chance of participating in network trade than their African-owned competitors. Based on this linkage, he regards FDI as the main vehicle for increasing "the volume, diversity and value-added of exports" (p. 351). By implementing the behind- and between-border reforms identified in the second section, he concludes, African countries will attract more FDI, which, in turn, will increase and diversify exports, thereby offering more channels through which Africa can participate in global production.
Africa's Silk Road provides a thorough examination of the barriers to trade and investment in sub-Saharan Africa. Though the book's policy prescriptions are a bit vague and routine, they are empirically supported by the latest firm-level data and therefore provide valuable insight into the microdynamics of African capital flows. Yet in the context of the broader purpose of the book—to determine how Africa can improve its economic situation in response to increased trade and...